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The Sky Is Falling

Even so, you must chill.

Stop. To steal a line from Cameron Crowe's 1989 Say Anything: "You must chill. You must chill."

Yes, I understand that pretty much every market average fell more than 3% on Friday. ExxonMobil(NYSE:XOM) shed nearly 3%. Visa(NYSE:V), 4%. Boeing(NYSE:BA), 5%. Heck, one of my own stocks -- Marvel Entertainment(NYSE:MVL) -- fell further than any of these, down 5.7% on the day. Each of the major averages -- Nasdaq, Dow, and S&P -- is trading where it was back at the tail end of 2006. Scary.

Yet if you're reading this, it means I'm still typing. I haven't jumped out of any windows. (Not that it would help matters any. I'm on the ground floor.) That sort of dramatic overreaction doesn't help. Panicking as your stocks plummet won't slow their fall, and it won't salvage your portfolio -- just lock in your losses.

Well, whatshouldwe do?You should be grateful for today's object lesson in the volatility of the markets.

From time to time, we all need to be reminded that asset prices can go down as well as up. Otherwise, we might do something stupid -- like, say, pay more than 300 times earnings for a share of SunPower(NASDAQ:SPWR). Or buy a $200,000 house for $300,000, finance it with a no-money-down subprime ARM mortgage at 2% with a six-month balloon payment, and then wonder why we can't afford the mortgage when the rate resets to 6%, and our monthly payments suddenly triple.

Hypothetically speaking, and present company excluded, of course.

No, no -- what should we do about the stock market?Oh, right. Well, just keep on doing what you've been doing. I did say "present company excluded," right? So keep collecting and depositing your paychecks. Researching high-quality, low-price stocks. Buying shares at a significant margin of safety. And purchasing no more of any given stock than you can afford to lose. (Because we all make mistakes from time to time.)

Once you've got that down, though, it's time to get greedy.

Greed is goodSee the opening lines of this column up above? A lot of investors are saying things like that right now. Even the pros are panicking. The hedge-fund types? They're worrying about making their quarterly numbers, and they're selling out of positions they love, in a frantic attempt to stanch the bleeding.

In short, while the so-called Wise Men on Wall Street are busy selling their favorite stocks, you should be marshalling your pennies, updating your buy list, and deciding how far Coca-Cola(NYSE:KO) and Intuitive Surgical(NASDAQ:ISRG) have to fall before you'll be willing to buy in.

Author

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.